The New Jersey Board of Public Utilities (BPU), in a Nov. 21 order – to be effective on Dec. 1 – adopted a stipulation regarding a proposal by Public Service Enterprise Group’s (NYSE:PEG) Public Service Electric and Gas (PSE&G) to build a substation.
As noted in the order, the BPU in May 2014 issued an order approving a settlement of PSE&G’s Energy Strong, which is an investment program to harden the company’s electric and gas infrastructure to make them less susceptible to damage from wind, flying debris, and water damage in anticipation of major storm events.
That program includes several subprograms, including an Electric Station Flood Mitigation subprogram designed to implement flood mitigation for identified electric substations that experienced water intrusion during Superstorm Sandy, Hurricane Irene, or other recent water intrusion events, the BPU said.
In August 2016, PSE&G filed a petition with the BPU seeking approval to build, own, and operate a replacement substation at the site of the current Mason and Building 9 substations, which are located adjacent to each other in Kearny, N.J., the BPU said.
While the existing substation(s) are owned by New Jersey Transit Corporation (NJ Transit) and include some PSE&G transmission facilities, PSE&G requested approval for the company to build, own, and primarily operate the new substation.
The BPU added that according to the company, the existing substation serves as a flow-through facility for power transmitted by PSE&G throughout northern New Jersey and, as such, is critical to the reliability of electric service in northern New Jersey. More specifically, the existing substation is currently configured as a 230-kV substation containing a single 230-kV high-side bus-tie circuit breaker that splits the 230-kV PSE&G transmission line into two circuits that terminate at the PSE&G Athenia and Essex substations, respectively.
The order also noted that any failure at the existing substation would reduce the availability of power to PSE&G’s Athenia and Essex substations, and result in PSE&G’s Cook Road and Kingsland substations being deprived of an alternate source of power. The existing substation presents a single point of failure risk that can only be eliminated through the construction of the new substation.
Additionally, the order added, the existing substation is critical to the reliability of rail transportation service in northern New Jersey. The existing substation is the source of traction power for a 14.5-mile segment of NJ Transit’s Morris & Essex lines between Maplewood and Hoboken, including critical connection points for travel into and out of New York City. The BPU added that PSE&G claims that the existing substation was severely damaged during Superstorm Sandy and requires replacement. The company submits that the proposal is similar to the substation resiliency projects included in the Energy Strong Electric Station Flood Mitigation subprogram.
PSE&G further claims that the project would enhance the reliability and resiliency of the company’s provision of energy service to the larger region, and would be capable of providing highly reliable and sufficient power to NJ Transit’s electric traction system, maintenance facilities, and other related facilities and systems.
The BPU added that according to the company, the new substation will serve a role in the operation of NJ Transit’s NJ Transit Grid, which is a proposed microgrid system that will provide reliable power to support a core segment of NJ Transit’s transportation service in northern New Jersey and the Hudson River crossings in the event of an electrical system failure resulting in the interruption of electric delivery service to NJ Transit. The company estimates that the new substation will be first placed into service in December 2020.
The BPU also said that the company proposes to recover its portion of the project costs through distribution rates using a mechanism similar to that adopted in the Energy Strong proceeding. Specifically, the company proposes that the cost recovery will occur for the new substation investment through three rate roll-ins. The company also seeks approval of a revised high tension service (HTS) tariff to include a special provision for services provided to the new substation and a cost-recovery mechanism entitled Substation Adjustment Mechanism (SAM) that permits the recovery of capital expenditures in the new substation as it is placed into service, plus allowance for funds used during construction (AFUDC), the BPU added.
By order dated Sept. 23, 2016, the BPU designated BPU Commissioner Joseph Fiordaliso as the presiding commissioner with authority to rule on all motions that arise during the proceeding.
The BPU also noted that following the review of discovery, testimony, and transcripts, on or about Nov. 9, PSE&G, the New Jersey Division of Rate Counsel, the New Jersey Large Energy Users Coalition (NJLEUC), NJ Transit, and BPU staff – collectively referred to as the signatory parties – executed a stipulation and settlement agreement resolving all of the issues in the proceeding.
The BPU said that in pertinent part, the stipulation provides, for instance, that:
- PSE&G is to be permitted by the BPU to demolish the existing substation and rebuild, own, and operate the new substation as set forth in the stipulation. The new substation will be a PSE&G-owned asset that is part of the company’s electrical system used to provide utility service to NJ Transit. The Mason substation reconstruction project will be performed by PSE&G subject to the BPU’s jurisdiction and under the standards applicable to public utility construction projects, and under the terms and conditions of the Construction Coordination and Protocol Agreement attached to the stipulation
- Based upon the revised system design, the company’s cost estimate for the project is a base cost of $206m – that estimate does not include risk and contingency (R&C). While NJ Transit and PSE&G agree on the estimate of the project’s base cost of $206m, they each use a different R&C amount in estimating the total cost estimate for the project. PSE&G’s estimated project cost is based upon information known by PSE&G at this time and only includes R&C for such known costs
- The estimated project cost includes reimbursement to NJ Transit for various reasonable costs NJ Transit has incurred, and is expected to incur, in connection with the project. The project cost estimate includes a reimbursement amount for non-disputed ancillary costs limited to $15.6m. The estimated project cost does not include costs for the property easement access rights from NJ Transit that are required for the project, which costs are estimated to not exceed $75,000. Costs that PSE&G incurs to acquire property rights required for the project will be included in the project costs and are not to exceed fair market value. The costs to replace the Mason substation are to be funded by a combination of investment by PSE&G and by a non-shareholder capital contribution to be made by NJ Transit to PSE&G in an amount estimated by NJ Transit at $132m; the amount of the NJ Transit contribution may change. The costs to be incurred by PSE&G for the project are to be limited to $100m, and are to be recovered in a base rate case proceeding as set forth in the stipulation. Investment by PSE&G recoverable from distribution ratepayers will not exceed $100m except as provided in the stipulation. The $100m investment by PSE&G is to be part of the $1.22bn of investment authorized by the BPU in connection with its approval of the Energy Strong program. NJ Transit is to be responsible for the payments of all the project costs in excess of $100m except as described in the stipulation
- PSE&G is to be permitted to recover its prudently incurred project cost investment of $100m, plus AFUDC, in a base rate case proceeding occurring after the project is placed into service. The AFUDC rate will reflect a cost of equity of 9.75% until PSE&G’s next base rate case, after which the cost of equity used in the AFUDC calculation will be updated to reflect the cost of equity approved in the company’s most recent base rate case
- Because of the unique nature of the rail traction service to be provided by PSE&G at the new substation, the PSE&G HTS tariff is to be amended to include a special provision describing the service provided at the substation
- It is anticipated that NJ Transit’s proposed microgrid will be interconnected to the new substation. In order to make such interconnection, NJ Transit will be required to apply to and obtain interconnection approval from PJM Interconnection
The BPU said that it recognizes that the stipulation represents a balanced solution considering the many complex issues that were addressed during the proceeding. The BPU further noted that the new substation will support transmission grid resiliency and the microgrid application for NJ Transit.
Any determination as to the prudency of the costs and expenses attributed to PSE&G through the stipulation is to be made in an appropriate subsequent rate proceeding as set forth in the stipulation, the BPU said.